In Philadelphia, mentally handicapped adults were held captive in a basement while their captors collected their Social Security disability. And the captors clearly didn’t have it all together, mentally, either, which was the only reason they got caught. Makes me wonder how much this sort of fraud is going on. Not so much kidnapping and keeping prisoner in the basement, but handicapped folks getting government assistance where the assistance goes to the “caretaker” and their lifestyle, rather than to support the handicapped individual.

It’s now well-established that the science is in, and Global Warming is an established fact like the 2nd law of thermodynamics, and taxes must be raised immediately to fund the green energy owned by personal friends of powerful politicians. Although it’s too late to do anything about global warming and we’re almost certainly doomed, it’s even worse than you thought. It’s not just the ice caps that are shrinking. Its the polar bears.

Aside: I am vaguely irritated that Michael Crichton’s speeches on global warming and other issues have disappeared from his own website. I’m note sure he’d approve of that posthumous revisionary stewardship.

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The Post this weekend looked at the light bulb issue and the phase out of incandescent bulbs. What was interesting to me was the marketing campaign that is going to be deployed: convincing Americans that light bulbs are durable goods and not disposable items:

Philips is hoping to persuade consumers to view the LED bulbs as a durable good like an iPad, a TV or a car rather than a disposable good such as Kleenex, pencils or toilet paper. That way, people might be more inclined to pay $300 for 10 to 15 LED bulbs for a house energy and lighting upgrade, instead of just grabbing incandescents at $2 a box as needed.

“We’re used to thinking of light bulbs as a replacement business,” Crawford said. “Transitioning our mind-set is absolutely a business challenge.”

Or, you can do what I’m planning on doing. Stockpiling. And then, when the time is right, profiteering.

KW, the first one will be free of course. I know you’re already hooked.

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I heartily admit that I am not the equal of most of you when it comes to posting. While I enjoy the back-and-forth, I often get lost in the weeds. So, I’ve pulled out the income inequality argument from the Sun. night comments and am posting the following IMF study entitled “Equality and Efficiency.”

An excerpt:

Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution? Are social justice and social product at war with one another?

In a word, no.

In recent work (Berg, Ostry, and Zettelmeyer, 2011; and Berg and Ostry, 2011), we discovered that when growth is looked at over the long term, the trade-off between efficiency and equality may not exist. In fact equality appears to be an important ingredient in promoting and sustaining growth. The difference between countries that can sustain rapid growth for many years or even decades and the many others that see growth spurts fade quickly may be the level of inequality. Countries may find that improving equality may also improve efficiency, understood as more sustainable long-run growth.

Inequality matters for growth and other macroeconomic outcomes, in all corners of the globe. One need look no further than the role inequality is thought to have played in creating the disaffection that underlies much of the recent unrest in the Middle East. And, taking a historical perspective, the increase in U.S. income inequality in recent decades is strikingly similar to the increase that occurred in the 1920s. In both cases there was a boom in the financial sector, poor people borrowed a lot, and a huge financial crisis ensued (see “Leveraging Inequality,” F&D, December 2010 and “Inequality = Indebted” in this issue of F&D). The recent global economic crisis, with its roots in U.S. financial markets, may have resulted, in part at least, from the increase in inequality. With inequality growing in the United States and other important economies, the relationship between inequality and growth takes on more significance.

After a lull in activity, Merger Monday is back upon us. Today’s activity is in the energy space as Kinder Morgan is buying El Paso for $38 billion in cash and stock, and Norwegian Oil company Statoil is buying E&P independent Brigham Exploration. The KMI / EP deal is a bet that natural gas will continue to grow its market share of energy in the US. Barclay’s will provide $11.5 billion in financing, which is a good sign for the credit markets.

Germany poured cold water on the idea of a complete sovereign debt crisis fix at the Oct 23 summit. G20 finance ministers met over the weekend. This has all the feelings of a negotiation, not a Lehman-esque crisis.

Citigroup posted better than expected earnings this morning, while Wells Fargo missed. Citi announced they have $32.4 billion in European exposure. Lowe’s announced they will close 20 stores and lay off 2000 workers.

Robert Sameulson has a piece in this morning’s Washington Post which discusses why our children’s future doesn’t look so bright. IMO, this sort of thinking is part and parcel of recessions. If anything, I think the national mood was worse during the late 70s / early 80s, where people thought that the US would be devoured by the two headed monster of OPEC and the Japanese. It turned out that oil demand was a lot more elastic than we thought, and the Japanese were in a bubble of their own. US manufacturing rebounded smartly as US companies adopted just-in-time and adopted Deming’s quality concepts.

I remember during the early 90s recession, we were supposedly heading for a generational war as the baby boom generation took all the job opportunities from Gen X-ers. Unemployed Gen X-ers would supposedly toil away forever at temp jobs while highly paid baby boomers bid up real estate prices to unreachable levels. Instead, we got the dot-com boom, which made many Gen X-ers extremely rich.

The point is that conventional wisdom, especially in the area of economics, is usually wrong because it overreacts to what is going on at the moment and extrapolates that forever. It accounts for the Business Week “Death of Equities” cover story in August 1979 as well as Dow 36,000 which was released in Oct 1999.

While I do believe that this recession is indeed different that past Fed-driven recessions, it isn’t a permanent state of affairs. This too shall pass. Booms don’t last forever, and neither do busts. My view has been that we are on a cusp of a revolution in energy which will collapse prices and turn the US from a net importer of energy to a net exporter. And that revolution will be a true elixir – it will go a long way towards fixing our budget problems and our trade deficit. It will also directly benefit the middle class the most by increasing disposable incomes and providing jobs.

We do have some more wood to chop economically – housing has to bottom, and the imbalances that stemmed from the real estate bubble have to be corrected. The debt that accrued during the last decade has to be worked off. Fortunately, while debt levels are quite high according to historical levels, debt service levels (principal and interest payments) are on the low side because interest rates are so low. Which means the debt will be worked off faster.

In economic data, Empire Manufacturing came in lower than expected. Industrial production was .2% and Capacity Utilization is slightly lower than expected at 77.4%. Below is a chart of capacity utilization. It shows that there still is a tremendous amount of slack in the economy, which bodes well for inflationary fears.

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The CLASS program has ended in failure even before beginning, with the administration finally admitting that it was unworkable, just as prophesied by Paul Ryan and other Republicans.

Somewhere there is a museum of perpetual motion inventions. Likewise, CLASS seems to me a perfect example of the quixotic liberal quest to invent the free lunch. Democrats fought with arithmetic to the bitter end, but in the end arithmetic won, and it was revealed that, as always with the free-lunch skunkworks, the real long game for CLASS was to raise more taxes and wrest more of our freedom and money away from us and into the hands of government. The promise, of course, was that this was a gift to us of super-competent technocrats who, now at last fully in charge, could fix things for “us” that only government could fix. Politics as usual.